Copper to soften in 2022 on growing supply and rate hikes

LONDON/BENGALURU, Jan 28 (Reuters) – Copper prices are set to languish this year, weighed down by weaker demand as rising interest rates curb economic growth while mines churn out more supply.

Benchmark copper hit a record peak at $10,747.50 a tonne in May last year, boosted by pent-up demand as growth accelerated when pandemic lockdowns were eased and the market faced tight supplies and sliding inventories.

But copper has remained relatively static since then, partly owing to slower growth in top consumer China.

“The return of supply, predominantly from South America, will weigh heavily on copper prices in 2022,” said Caroline Bain at Capital Economics.

The cash copper contract on the London Metal Exchange (LME) is expected to average $9,370 a tonne in 2022, a median forecast of 25 analysts showed, 4.7% lower than Thursday’s closing price.

“We expect the major bear factor for copper’s price in 2022 to be the U.S. Fed adjusting monetary policy,” said Liberum analyst Tom Price.

Analysts expect a copper market deficit of 37,000 tonnes this year and a surplus of 286,000 tonnes in 2023, compared with an 82,000 tonne surplus forecast for 2022 in the October poll.

ALUMINIUM POWER CRUNCH

The top performing base metal on the LME so far this year is aluminium. It has gained 10% after touching 13-year highs in 2021, largely thanks to production curtailments in China and Europe because of power issues.

Analysts expect an aluminium market deficit of 609,000 tonnes this year, up from the 396,000 tonne deficit forecast in October’s poll.

“We expect power supply issues in China to continue through the winter heating season, but wetter weather from the second quarter should help to ease the power shortages,” Berenberg’s Richard Hatch said.

Most analysts, however, believe that much of the tightness is already reflected in the price, forecasting LME cash aluminium to average $2,780 a tonne in 2022, down 10.8% from the current price.

RISING NICKEL SUPPLY

Nickel prices soared to more than $24,000 a tonne this month, the highest for more than a decade, on booming demand for electric vehicles and sliding inventories.

But analysts expect LME cash nickel to average $19,921 a tonne this year, 12.6% lower than the latest close.

“We could see softer stainless demand later in the first quarter due to production reductions in China through the Olympics,” said Tyler Broda at RBC Capital Markets.

Prices could also be pressured by rising supplies from top producer Indonesia.

The global nickel market is forecast to be in deficit to the tune of 17,000 tonnes in 2022, shifting to a surplus of 34,000 tonnes next year.

Reporting by Eric Onstad and Seher Dareen
Editing by Pratima Desai and David Goodman

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